Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it
AbstractWe investigate rewards to R&D in a model where substitute ideas for innovation arrive to random recipients at random times. By foregoing investment in a current idea, society as a whole preserves an option to invest in a better idea for the same market niche, but with delay. Because successive ideas may occur to different people, there is a conflict between private and social optimality. We characterize the welfare-maximizing reward structure when the social planner learns over time about the arrival rate of ideas, and when private recipients of ideas can bank their ideas for future use. We argue that private incentives to create socially valuable options can be achieved by giving higher rewards where "ideas are scarce."
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Date of creation: May 2009
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- Erkal, Nisvan & Scotchmer, Suzanne, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it, or Bank it," Berkeley Olin Program in Law & Economics, Working Paper Series qt74c709qr, Berkeley Olin Program in Law & Economics.
- Scotchmer, Suzanne & Erkal, Nisvan, 2009. "Scarcity of Ideas and R&D Options: Use it, Lose it or Bank it," Department of Economics, Working Paper Series qt1295k6gg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- L00 - Industrial Organization - - General - - - General
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-16 (All new papers)
- NEP-INO-2009-05-16 (Innovation)
- NEP-LAW-2009-05-16 (Law & Economics)
- NEP-MIC-2009-05-16 (Microeconomics)
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